Intel Secures $3.5 Billion Deal for Military Chip Production

Intel has reached an agreement with U.S. officials for up to $3.5 billion in federal grants to produce semiconductors for military use. The deal, part of the secretive Secure Enclave program, aims to manufacture advanced chips specifically designed for military and intelligence applications across various states, including a facility in Arizona.

While Intel has long been considered the favorite to secure this funding, the process has not been without challenges. Competing chipmakers and concerns within Washington about relying on a single supplier created tension. Additionally, a broader funding conflict across multiple agencies threatened to reduce Intel’s award. However, the Secure Enclave deal further solidifies Intel's leadership in U.S. semiconductor manufacturing, particularly in defense technology.

This new grant is part of the larger Chips and Science Act, signed by President Joe Biden in 2022. Intel was previously awarded $8.5 billion in grants and $11 billion in loans under the same program, designed to bolster U.S. chip production and reduce dependency on Asian manufacturers. The Secure Enclave funding, although administered through the Commerce Department, was handled outside of the standard application process due to disputes earlier this year.

Despite Intel’s financial struggles, as evidenced by their recent disappointing earnings report, the U.S. government has placed its trust in the company to execute its military semiconductor production plans. This move highlights the lack of alternatives for the Biden administration, as Intel remains the only U.S. company capable of producing cutting-edge processors. Other major chipmakers, like Taiwan Semiconductor Manufacturing (TSMC) and Samsung, are building U.S.-based plants but are not part of the Secure Enclave program.

Although Intel’s future manufacturing plans remain uncertain, especially concerning projects outside the U.S., the company continues to explore partnerships with firms like Microsoft. However, it has faced challenges convincing major customers like Nvidia and AMD to use its manufacturing facilities.

For the Pentagon, working with chipmakers has been historically difficult, with previous programs like the trusted foundry initiative facing challenges in meeting Defense Department requirements and achieving a return on investment. While the Pentagon initially committed $2.5 billion to Secure Enclave, it withdrew its funding earlier this year, leaving the Commerce Department to cover the full cost.